VAT exempt only sales

[Dave88]

Hi,

I’m wondering if anyone can help. My brother is setting up a busienss selling an item online which is VAT exempt. As the government website states, if you only sell VAT exempt items you can’t register to claim any VAT back.
We have established that the initial set up costs and first years annual costs (plus recurring monthly) such as accountants, IT software/hardware etc etc has a substantial VAT value (in the region of £1500-£2000). Is there any legitimate way around this rule on the business which would then allow voluntary registration and the ability to claim back this initial VAT and any other VAT charges on costs and services further down the line?

Regards,

Dave

[AdamS93]

No. What is you brother selling?

To be able to recover input VAT there needs to be a direct and immediate link to a taxable supply. An exempt supply is not a taxable supply.

[Dave88]

Advertising services to charities. So there’s no cost of the VAT to the charity on the end.

But at the front end it means he can’t then claim VAT back on any on the set up costs and equipment effectively.

Based on what you said though with a direct link how does that work then with the set up costs of any business as there’s no direct link until you physically sell something and charge VAT...

[les35]

Advertising for charities is zero rated, not exempt, so you can register for VAT, and recover your input tax.
But do check the guidance to ensure you fall within the zero rating provisions. Read this: https://www.gov.uk/guidance/vat-when-you-supply-services-or-goods-to-charities-notice-70158
.. as not all advertising is eligible for zero rating. HMRC have challenged zero rating for some advertising via social media.

[AdamS93]

What les said!

There is a massive difference between an exempt supply and a zero-rates one. Zero-rated supplies carry all the benefits of making a taxable supply without having to charge any VAT - well technically you do charge VAT just at a rate of 0%.

Best to get an accountant on board - I believe we have just saved you a few ‘bob’